In this article we compare SCHD vs SPHD:
Choosing between two investments that belong to the same classification is challenging. Both SCHD and SPHD are Exchange Traded Funds (ETFs).
This means these two funds may have a lot in common, and they do. SPHD and SCHD are two top-rated U.S funds almost any investor or investment expert will recommend.
Over the years, these ETFs have not just proven to be reliable but also profitable.
SCHD focuses more on long-term dividend growth companies while SPHD looks for more high-yield stocks with low volatility.
Let’s take a closer look at the differences between Schwab U.S. Dividend Equity ETF (SCHD) and Invesco S&P 500 High Dividend Low Volatility ETF (SPHD).
The Schwab U.S. Dividend Equity ETF (SCHD) was launched in October 2011 as a fund that seeks to track the total return of the Dow Jones U.S. The Dow Jones is not a new name, it is one of the most popular indexes.
It measures the performance of high dividend-yielding stocks issued by U.S. companies.
SCHD invests in stocks that are included in the Dow Jones index (at least 90% of its net assets go to these stocks). In this way, SCHD measures the performance of high-dividend stocks.
These U.S. stocks are selected for their strength based on financial ratios in comparison to their counterparts.
Companies that qualify to be in the index must have a history of consistent dividend payments for at least 10 successive years.
The criteria for selecting stocks in the index include:
- Dividend Yield
- Return On Equity
- Cash Flow To Total Debt
- 5-Year Dividend Growth Rate
The index also uses a modified market capitalization strategy to weigh stocks.
SCHD seeks to track an index that is not only about quality but also the sustainability of dividends.
Lastly, SCHD is a low-cost fund with an expense ratio of 0.06%.
SCHD Performance & Returns
Schwab’s SCHD has provided excellent returns over the last 10 years especially considering its high dividend yield of 2.89%.
Here is the performance over 10 years:
The top 10 holdings for SCHD make up 40% of its total assets.
Schwab’s SCHD is primarily made up of Merck, Coca-Cola, Amgen, Pfizer, and Cisco and provides exposure to over 100 stocks.
With only 103 holdings in the portfolio, SCHD is not very diversified compared to other ETFs like Vanguard Total Stock Market Index Fund ETF (VTI).
Invesco S&P 500 High Dividend Low Volatility ETF (SPHD) was launched in October 2012. SPHD seeks to duplicate the investment results of the S&P 500 Low Volatility High Dividend Index.
The fund typically invests at least 90% of its total assets in securities that are included in the underlying index.
SPHD focuses on low volatility, and so the ETF selects the 75 highest-dividend-yielding companies from the S&P 500 over the past 12 months. It then picks the 50 least volatile of them.
Therefore, the fund comprises 50 securities in the S&P 500 Index that have historically sustained high dividend yields with low volatility.
Because the index focuses on dividend yields, it weights each of the securities it shortlists by its dividend yield. The securities with the highest dividend yields receive the highest weights.
Invesco’s SPHD expense ratio is 0.30%.
SPHD Performance & Returns
Invesco’s SPHD performance returns have underperformed compared to SCHD, but it does have a higher dividend yield of 3.71%.
Here is the performance over 10 years:
The top 10 holdings for SPHD make up 29% of its total assets.
Invesco’s SPHD is primarily made up of Williams Companies, Chevron, PPL Corporation, Altria, and Iron Mountain and provides exposure to over 40 stocks.
SCHD vs SPHD: What’s The Difference?
The main difference between SCHD and SPHD is the company that offers the ETF and the expense ratio.
SCHD is offered by Charles Schwab
SPHD is offered by Invesco
As mentioned, another major difference is the expense ratio.
SCHD expense ratio is 0.06%
SPHD expense ratio is 0.30%
The top holdings of SCHD have a much healthier payout ratio compared to SPHD while also having strong growth.
Both SCHD and SPHD are great sources of passive income. Dividend income can be a major goal of investing especially among retirees.
A dividend is the sum of money that a company pays out regularly to its shareholders from its profit. In other words, owning shares of a company automatically entitles you to dividends.
SCHD vs SPHD Portfolio
Investing in either SCHD or SPHD gives you the benefit of decent monthly returns since they particularly invest in high dividend-yield companies.
The companies managing these two funds are high-quality and popular companies, Charles Schwab manages SCHD while Invesco PowerShares manages SPHD. These two companies are reputable.
This may not be a factor to ignore as it can give you a level of assurance (lower risk).
In 2017, there was a modification in the structure of Dividend ETFs where it was grouped into two.
The 2 Groups Are:
- Those that focus on high-yielding securities
- Those that focus on dividend growers
Now, let’s see the differences between SCHD vs SPHD!
For the past three years, SCHD has closely mirrored the S&P 500 and has, for some time now, outperformed the index with less variability than SPHD.
SCHD is a very popular ETF that invests in companies within the Dow Jones dividend 100 indexes. This dividend ETF has a strong performance history regarding capital appreciation and dividend growth over time.
Oftentimes, it is compared to the S&P 500 as the growth rate is almost identical, although SCHD has a much higher dividend yield.
SCHD vs SPHD Performance
SPHD is a high-yielding ETF that selects the top 50 high-yielding and lowest volatility holdings from the S&P 500. This ETF is also popular within the dividend investing community because of its high yield and monthly dividends.
SPHD is among the best ETFs in terms of monthly dividends.
When considering the holdings of both funds, there are some key differences. SPHD is filled with high-yielding companies that may not be of the best quality.
The top 10 holdings have high payout ratios but poor dividend growth history. This may suggest their dividend could be unsustainable and/or not grow as fast as SCHD.
This may be a pivotal point to look out for as it may be a potential risk.
With SCHD, it is the opposite. The top holdings have a much healthier payout ratio and yearly solid growth. This is a good sign.
Understanding the difference in holdings makes it easier to understand why SCHD performed better than SPHD in the portfolio backtests.
The holdings in SCHD are arguably in better financial health compared to SPHD.
Next, consider the expense ratios since they may affect investors’ preference for SCHD or SPHD.
SCHD vs SPHD Expense Ratio
In the ETF world, a slight difference in the expense ratios of funds matters. Many other notable ETFs offer expense ratios of less than 0.10%.
SPHD has an expense ratio of 0.30%, which is relatively high.
Let’s look at the implication of an expense ratio of 0.30% on your investment compared to the SCHD’s expense ratio of 0.06%.
If you invest $10,000 with SPHD, it will cost you $40 a year for funds operations (expense fee). With SCHD, you would only be paying $6.
Over 30 years and with a more extensive portfolio that can make a huge difference!
The point here is you are saving a lot of money when choosing SCHD over SPHD.
Investing In SCHD or SPHD
SCHD and SPHD are exchange-traded funds (ETFs), so there is no minimum investment. Investors looking to buy fractional shares can use platforms like M1 Finance.
Typically, fractional shares are not available for ETFs, but with M1 Finance, you can purchase fractional shares with no commission.
Buying fractional shares allows you to maximize your investment.
Both of these options are free. This is important because fees can lower our returns.
I like M1 Finance (Use this link for $50 when you open a new account) because it allows you to purchase SCHD, SPHD, and thousands of other stocks.
I also use Personal Capital to track my investment fees. They have a free Retirement Fee Analyzer that tells you the future impact of fees on your portfolio.
Personal Capital’s free tools allow you to quickly find which of your investments has high fees so you can switch them to low-cost options. (Get a $20 Amazon Gift Card with this link when you add at least one investment account containing a balance of more than $1,000 within 30 days)
SCHD vs SPHD Winner
SCHD and SPHD are Large Value funds for US Stocks, so they are among the best dividend-paying ETFs you can find. You’ll likely need to invest in just one of the two funds.
Since the focus of both ETFs differs slightly, your preference will factor into making a decision.
SCHD for long-term dividend growth companies
SPHD for high-yield stocks with low volatility
Also, don’t forget to consider the operating cost of the fund. The expense ratio may be a crucial factor to consider in SCHD vs SPHD.
My winner is SCHD because of its lower expense ratio. Performance is not guaranteed, but fees are.
If you liked this ETF comparison, check out SCHD vs DGRO.
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This information is my opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.